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Real property gains tax and the executor
25/08/2006 The Sun - Law & Realty By Yang Pei Keng

The real property gains tax (“gains tax”) is a form of tax that you have to pay when you sell any landed property, for example, a residential house, a shophouse (including a shoplot, an apartment and a flat). No gains tax is payable if you buy a landed property.

In other words, the Real Property Gains Tax Act 1976 (the “RPGT Act”) only applies to the sale, but not the purchase of any landed property.

The executor is the person (named in a will) who administers the estate (that is, the property) of a deceased.

RPGT introduced in 1975

No gains tax was payable up to the end of 1975. It was introduced by the RPGT Act on 7 November 1975

The RPGT Act was enacted to replace the Speculation Tax Act (since repealed). The Speculation Tax Act was supposed to be a temporary measure to fight speculation in landed property during the boom period in the seventies.

It was found to be a good source of revenue. The RPGT Act was then passed to perpetuate the tax on sale of land in the form of gains tax. Gains tax has since been payable for the past 30 years.

Date of acquisition

There are numerous aspects of the RPGT Act that need to be discussed. In this article, only one of the aspects is touched upon, that is, the date of acquisition of the property.

In order to compute any gains tax payable on the sale of a property, one has to ascertain the date of acquiring the property, that is, the date of acquisition.

Generally, the date of acquisition is the date the property was bought. However, in certain cases, the date of acquiring the property may not be that easily ascertained, for example, the date of acquisition by an executor of the estate of a deceased person.

Date of acquisition by executor

An executor does not acquire the estate of the deceased in the strict sense of the word. He does not acquire any interest in the property belonging to the estate of the deceased. He is merely an agent holding the property on behalf of the estate of the deceased, pending distribution of the property to its beneficiaries.

He may sell or dispose of the estate of the deceased before distributing it to the beneficiaries. The question is: What is the “date of acquisition” of a property by an executor (or an administrator), bearing in mind that he did not buy the property, but the deceased bought it.

The man in the street may take the date the deceased purchased the property as the date of acquisition by the executor. However, it is not so. The law has arbitrarily fixed the date of acquisition by an executor.

Date of death of the deceased

The RPGT Act takes the date of death of the deceased to be the date of acquisition by the executor, that is: date of death of the deceased = date of acquisition by executor.

The actual date the deceased bought the property (which could be many years before his death) is not to be taken into account, even though the executor steps into the shoes of the deceased when managing the deceased’s estate.

The date of death of the deceased is deemed to be the date of acquisition of the executor. This was the result of an amendment by the Finance Act (No.2) 1985, s39(g) to the RPGT Act. It took effect on 1 January 1986. A new paragraph 15B(1) was added to Schedule 2 of the Act:

“15B(1) Where an asset of a deceased person is disposed of (otherwise than to a legatee i.e.beneficiary) by his executor ..., such executor ... shall be deemed to have acquired it on the date of death of the deceased person."

According to this paragraph, the executor is taken to have acquired the property on the date of death of the deceased. The actual date the deceased bought the property is irrelevant. It may be much earlier than his date of death. An illustration may help:

In 2000, the deceased bought the property. In 2005, the deceased died. In 2006, the executor sold the property.

In the illustration given, the executor is deemed to have acquired the property in 2005 when the deceased died, but not in the year 2000 when he actually bought the property. The actual date the deceased bought the property was not taken into account.

The executor sold the property in 2006. He has to pay gains tax at the rate of 30% of the gain. That is the highest rate of the sliding scale of gains tax payable when a landed property is sold one year after the death of the deceased.

For example, if the gain in disposing of the property was RM100,000, the gains tax payable would be RM30,000.

If the date the deceased bought the property is taken into account, no gains tax is payable, since any sale of property after 5 years (2000 -1006) is not subject to gains tax.

Is the provision introduced to frustrate any attempt by the beneficiaries to avoid payment of RPGT by way of selling the property of the deceased before the distribution of the estate to the beneficiaries concerned?

Date of transmission to executor

There is another point which is worthy of note. When the property was transmitted (i.e. 'transferred') into the name of the executor, the date of transmissioin is not taken as the date of acquisition of the executor either, if he sells the property.

The writer is a member of the Conveyancing Practice Committee, Bar Council Malaysia,


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